'London house prices will definitely rise': State Bank of India to muscle in on UK's 'encouraging' mortgage market

India's largest bank is to enter Britain's lacklustre residential mortgage market, buoyed by its own analysis suggesting the recovery in house prices in London and the South-East is set to continue.

The State Bank of India will sell home loans through its 11-strong branch network and then through mortgage brokers from next year.

Home-grown banks have pulled back from lending, partly due to the imperative to pump up reserves but also because of concerns about the health of the property market.

Waterloo sunset: The sun will not be setting on London house prices, says State Bank of India

But SBI has undertaken extensive research and believes it can safely target London and the South-East.

Mrutyunjay Mahapatra, SBI's regional head for the UK, said: 'We looked back over time and found that property prices in London had not gone down over any five-year time period.

'Property buyers can be encouraged by two things: there will be
expansion of second home ownership, and secondly, turmoil in Europe,
Asia and Africa will continue. That will mean more buyers coming here.
London prices will definitely go up.'

He says the over-supply of flats still needs to be soaked up but expects that to happen within two years.

Prices in the capital have nearly returned to the highs of 2007 despite national averages remaining moribund.

Nationally, the average price of
£164,000 remains 12 per cent below the 2007 peak, according to
figures from Nationwide building society. But average values in London,
at £302,000, are only a whisker off the peak.

New competition: A State Bank of India branch in Leicester

Economic turmoil in Europe has spurred
buyers from around the world to protect their assets by buying property
in London, which is perceived as a safe-haven. The fall in the value of
sterling against the euro and other currencies has also propped up
demand by making property in the capital more affordable for foreign
buyers.

Buyers will be hoping that SBI will apply the same zeal to shaking up the mortgage market with low rates as it has done in the savings arena.

It wants to take a 5 per cent share of the mortgage market within 10 years.

Last month it was forced to pull its buy-to-let mortgages due to huge demand. Mr Mahapatra has confirmed that SBI will start lending again to landlords 'within 45 days' once the backlog of applications has been cleared.

SBI entered the landlord market a year ago and was offering a 3.99 per cent plus base rate, five-year tracker, which required a 30 per cent deposit.

Its new residential mortgages will demand a minimum 15 per cent deposit while landlords will need to put down 35 per cent.

Banks that are run efficiently are able to offer better mortgage and savings rates. Mr Mahapatra said SBI, which is 62 per cent owned by the Indian government and is barred from investment 'casino' banking, is efficient and will pass back the benefit to customers: 'Low costs and a willingness to take a slim profit margin - that is my strategy.'

The bank offers the best fixed savings rates over two years (3.50%), three years (3.85%), four years (4.20%) and five years (4.50%).

Last week, Handelsbanken, the conservatively-run Swedish bank that has launched aggressive expansion in the UK, revealed that it had cut its standard variable rate (SVR) on mortgages by 25 basis points to 4.5 per cent. It is far from the cheapest SVR but the move reflects the level of increased competition.

'This change reflects a further sustained fall in our
funding costs, which were already the lowest of any European
bank,' a spokesman said. 'This is down to Handelsbanken's reputation for financial strength and
prudence.'